Monday, June 1, 2009

Michael Mooron Aims to Build Mass Transit For Suburbanites

General Motors went bankrupt in 1919, 90 years ago, and the current bankruptcy has antecedents that are instructive. GM also was reorganized in the 1920s, when the DuPonts, the firm's chief stockholders, removed its founder, William Durant, for manipulating the firm's stock price. Pierre DuPont ran the firm briefly and hired Alfred Sloan, a managerial genius after whom are named MIT's Sloan School of Management (Sloan was an MIT alum) and the Sloan-Kettering Memorial Cancer Center in Manhattan. (Kettering was Sloan's R&D vice president and inventor of the self starting engine and many other automotive breakthroughs.)

The management policies that Sloan implemented transformed GM from a poor second to Ford to the world's largest manufacturing firm. Part of Sloan's insight involved decentralizing or divisionalizing the firm; creating price-based target markets for the automotive divisions; using return on investment to evaluate performance; and targeting higher-priced cars in order that used GMs would compete with the lowest price car--the Ford Model T. Sloan envisioned the used car market, and indeed, by the 1920s used GMs and other brands began to compete with the cheap Model Ts, but not the higher-end GM cars.

The reason Sloan was able to turn around GM was his managerial ability. In particular, Sloan understood markets; he established a market research system; he understood customers; he enhanced and utilized relationships with dealers; he developed cost efficient organizational structures; and he provided incentives for competent management and innovation. Sloan's sharp management skills contrast with the examples of public mismanagement that Michael Moore presents in his film Roger and Me. In the film, the Flint municipal government squanders millions on nonsensical investments like a theme park called "Auto World"; a useless hotel; and an effort to draw tourists to visit Flint.

But the mechanistic management style that Sloan represented had several flaws. Sloan was bad at labor relations and politics. As a result, he became a sacrificial lamb to Franklin D. Roosevelt's New Deal. The unionization of GM could have been implemented in a way to enhance GM's strategic advantage, but instead Sloan created an atmosphere of adversarial labor relations from which the firm never recovered. He was attacked not only by sit down strikers but also by Secretary of Labor Frances Perkins and, if I recall, Roosevelt himself.

Likewise, Sloan failed to develop a succession plan. The executives who followed him at GM were not his equals. Managerial breakthroughs were being made in Japan by the 1950s, yet the GM management was not able to imitate the ideas that Toyota pioneered.

The failure of GM was well documented in the 1972 On a Clear Day You Can See General Motors by De Lorean and Wright. As well, Peter Drucker had written a rather positive account of the firm in the late 1940s entitled Concept of the Corporation, to which the management reacted with considerable hostility. Sloan responded with his 1962 classic My Years with General Motors which is one of the best management books ever written. GM's paranoia about criticism ran deep, and its culture of conformity and groupthink undoubtedly contributed to its demise.

There is a long litany of critics of General Motors and the automobile industry, one of whom is Ralph Nader and another is Michael Moore. Moore's Roger and Me is a darn good film. Unfortunately, Moore's political ideas are downright Mooronic.

Jim Crum just sent me this drivel that Moore wrote about socializing the firm and turning it into a mass transit manufacturer. Moore's strategy is similar to the woman's in his film who conceptualized Flint as a tourist Mecca--and who upon failure made her destination to be tourism czar of Tel Aviv just as the Palestinian Intafada was about to start.

If GM is to be turned around it needs to clean house; eliminate management at the departmental head level and above; and institute nuts-and-bolts, quality-oriented managers who can institute lean manufacturing and a culture of innovation and cooperation. Imposition of the rancid, socialistic tripe that Moore has on offer will create another New York City subway system in the form of General Motors.

One of the problems with America today is that America's wealthy, including Moore, are economically illiterate and persistently self serving. Moore is one of the few who can afford an expensive apartment in Manhattan. He lived on 83rd off Broadway when I lived on Riverside Drive and 87th. I was there because my in-laws lived there. He was there because plunking down $1 or $2 million for an apartment is chicken feed for a Hollywood guy.

Thus, Moore makes the assumption that all Americans live in Manhattan and can afford the $1 million for a one bedroom apartment, just like he can. As a result, all Americans will benefit from more mass transit.

But if anything is worse managed than GM, it is New York City's subways. Moore probably doesn't take the subway. Rather, he is likely chauffeured around, possibly in a specially built hybrid Humvee to accommodate his frame. I doubt he could fit into one of those mini-van style taxis that are environmentally friendly and coming to dominate the New York taxi scene. As well, I suspect his flatulence is a bigger problem than the bovine flatulence and porcine waste about which environmentalists like to complain.

The New York City subway is a nightmare institution. Rats scurry hither and yon. When I travel to Brooklyn, there are 20 people in the subways and thousands above ground in Humvees and Cadillacs. Maybe most of the cars aren't GMs, but building more subway cars isn't going to change that because the subway system is so incompetently managed by the Metropolitan Transit Authority that it would have gone bankrupt 40 years ago if it were a private firm. Of course, before the city took it over in the 1930s, the subways were clean and attractive and the subway firms viable. Now, Moore is looking to turn GM into another incompetently managed subway system. To him, the way to turn around GM is to turn a third rate private firm into a twentieth rate public sector one.

Moore is right to criticize GM's management, but he is one of the few people who feel themselves qualified to comment on management issues whose ideas are more blundering and stupider than Wall Street's or GM's. Socializing GM is guaranteed to establish a management even stupider than Roger Smith. And Moore, a robotized advocate of socialism who has never seen a public institution he was willing to criticize, no matter how putrid, won't be around to tell the tale.

Moore writes:

1. Just as President Roosevelt did after the attack on Pearl Harbor, the President must tell the nation that we are at war and we must immediately convert our auto factories to factories that build mass transit vehicles and alternative energy devices. Within months in Flint in 1942, GM halted all car production and immediately used the assembly lines to build planes, tanks and machine guns. The conversion took no time at all. Everyone pitched in. The fascists were defeated.

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Mitchell Langbert

About Me

I have researched and written about employee benefit issues and in my previous life was a corporate benefits administrator. I am currently associate professor of business at Brooklyn College. I hold a Ph.D. from the Columbia University Graduate School of Business, an MBA from UCLA and an AB from Sarah Lawrence College. I am working on a project involving public policy. I blog on academic and political topics.